Govt. has taken various measures towards making India as an attractive investment destination, while a lot needs to be done, but relies on opposition’s aid.

Winter session of parliament and taking stock of economic reforms

Executive Summary

Government has taken serious measures towards economic reforms but it is still in the midway due to non-cooperation by the opposition. Various bills are to be introduced in the winter session but a smooth passage is not expected after BJP’s Bihar debacle. GST which is one of the biggest ever taxation reform is also likely to be delayed and the government’s job is going to be tough in the coming days.

india hungry for economic power Winter Session Of Parliament And Taking Stock Of Economic Reforms

Almost one and half years from now Modi government came with a promise of “Achhe Din” and by and large it has taken serious steps to bring the economy on track. However honest efforts of the government are partially neutralised by the united opposition which blocked several reforms and partially by the inaction of the elected representatives who are unable to pass the message to masses. Winter session of parliament is going to start from 26th November and it is likely that opposition will stick to the same tactics which they adopted during Monsoon session and will make the job tougher for the government.

modi govt economy Winter Session Of Parliament And Taking Stock Of Economic Reforms

Modi’s foreign visits have faced severe criticism by the opponents but it has a positive impact on the inflow of funds and as per the data released by DIPP, FDI inflow has registered a growth of ~31% and increased from USD 7,235 million (Q1 FY 2014-15) to 9,508 million (Q1 FY 2015-16). It is a clear sign that government is able to restore the investors’ confidence and despite of fall in Chinese and Brazilian economy, India remains a bright spot in the emerging market. Economic performance of the government based on the key indicators is given below-

i.         Indirect tax collection has increased by ~35.9% for the period April-October 2015 and excise duty collection has recorded ~69% growth which clearly indicates that the underlying tax base has increased. Government took additional tax measures in the current fiscal (like increase in service tax rate from 12.36% to 14%) and growth in tax collection is ~12% after stripping away the impact of such measures.

ii.        Nikkei Industrial Purchasing Managers’ Index (PMI) index shows Services PMI has increased to 53.20 after going below 50 in the previous months. However Manufacturing PMI has come down to 50.7 which is a temporary phenomenon (a reading above 50 indicates an expansion in business activity and below 50 indicates contraction).

iii.      Although annual industrial output grew at a lower than expected rate of 3.6% in September’15 but it may be noted that the industrial production expanded 6.4% in August’15 and the decline in September is on account of certain industry specific factors. Industrial production is improving continuously (except few months) since FY 2013-14.

iv.      As per data released by Ministry of Commerce and Industry, there is a decline in exports in the current fiscal but imports have contracted significantly (25.1% for period ended September’15) and our trade deficit came down to USD 10.5  billion as compared to USD 14.2 billion for the same period.

However decrease in imports are largely on account of decrease in crude oil prices.

v.        Government is able to contain the inflation within reasonable limits and consumer prices increased to 4.4% in September from 3.7% in August. However the consumer prices are increasing on a monthly basis and it increased by 0.97% in August and 0.48% September which can be a cause of concern for the government.

A small dose of inflation is required to keep the production cycle moving but it should not exceed the psychological benchmark of 5%.

On the contrary to the consumer prices, wholesale price index fell by 0.06% in September and 0.45% in August. Although there are different weights assigned to different commodities while calculating the inflation but it is expected that since there is decrease in wholesale price index it will eventually help in easing down the consumer prices.

raghuram rajan cuts bps Winter Session Of Parliament And Taking Stock Of Economic Reforms

vi.      Reserve Bank has recently announced a rate cut by 50 basis points which will reduce the cost of debt and help to boost the investment cycle. However rate cut will have an impact on the inflation but the government has to look at increasing the production to check the inflation.

vii.     PM Modi in his recent visit to UK assured investors for a stable and transparent tax regime. Finance minister had already announced that retrospective amendments would be bought only after due consultation and in exceptional cases. Government has also addressed the concerns of investors over applicability of Minimum Alternate Tax (MAT) on FIIs.

viii.   Data released by DIPP indicates that the government has to go a long way for the success of Make in India vision. Investment proposals are decreasing YoY basis, both in terms of number of proposals and proposed investment (refer table below). However from a perspective it may be noted that actual investment is increasing in the country.

Year wise investment proposals

year wise investment proposal Winter Session Of Parliament And Taking Stock Of Economic Reforms

Source- Department of Industrial Policy and Promotion (DIPP)

ix.      Gross fixed capital formation as percentage of GDP reduced to 8,072 billion INR in second quarter of the current year from 8,548 billion INR in first quarter. There is a decline after continuous increase for four quarters. This is an important indicator about the investment cycle and it can be a cause of concern for the government.

MODIS GOALS FOR INDIA Winter Session Of Parliament And Taking Stock Of Economic Reforms

On a macro level, inflation remains at normal level and industrial production has also shown some positive signs. Reserve bank has also decreased the interest rates which will help to stimulate investment. Government has taken various measures towards reducing the procedural aspects and making India as an attractive investment destination. However lot more needs to be done and it will be dependent on the support of opposition on crucial bills.

By Shashank Saurav

Image Source: 1234

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